Friday, April 19, 2024

Banking Regulation (Amendment) Bill goes though Rajya Sabha

On September 22, Finance Minister Nirmala Sitharaman pushed the Banking Regulation (Amendment) Bill, 2020 through Rajya Sabha, paving its way to becoming an Act after the president’s signature. The Finance Minister had said that this bill would be a huge boost to small depositors. However, what did this bill really achieve?

The bill has now brought all co-operative banks too under the supervision of the Reserve Bank of India. The finance minister had earlier said that since co-operative banks also conduct lending and deposit business like normal banks, it would only be proper to have these banks also fall under the ambit of the RBI.

This, of course, emanates from the recent failure of the Punjab and Maharashtra Co-operative Bank (PMC Bank), which hit thousands of depositors hard. This was after the Madhavpura Mercantile Cooperative Bank collapsed in 2001. It was the oldest cooperative bank in Gujarat. It fell through a huge loan default – of Rs 1,030 crores – of stock broker Ketan Parekh.
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The Centre had been moving on this since June when it had brought an ordinance to the effect. The minister said in Parliament that the amendment in the Banking Regulation Bill will completely protect the interest of depositors and will help with quick recovery in cases of stressed co-operative banks without any moratorium.

According to the Finance Minister, the legislation empowers the central bank to regulate only the banking activities of co-operatives and it is not applicable to a primary agricultural credit society or a co-operative society providing finance for agricultural development.

“By amending Section 45 we are able to give a quick recovery, quick payback, and also make sure the interests of the depositors are safeguarded,” Sitharaman said in Rajya Sabha.

In the end, however, the limit of deposit insurance has remained the same. Complete protection of the investor has not been achieved.


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